Cutting AMD off at the knees in Q4 left Intel limping a bit too.

Sequentially Intel did great - revenues up 11%, hitting the top of its projections, income up 15%, operating income up 8% - enough for CFO Andy Bryant to characterize Intel's performance as a "strong ending to a difficult year" - but the year-over-year comparison shows the blood spatter - revenues down 5%, earnings down 39%, and operating income down 55%.

Specifically Intel earned $1.5 billion, or 26 cents a share, on revenues of $9.7 billion.

After-hours trading sheared upwards of 4% off Intel's stock price, which was up 10% since the first of the year, even if Intel beat the Street coming in with 26 cents, a penny ahead of Wall Street's consensus, which only figured it would do $9.4 billion.

Income was improved by asset sales and restructuring. Intel's workforce is down 6% to 94,100, ahead of its 95,000 target. It expects to save $2 billion this year.

Intel's all-important gross margin came in at a disappointing 49.6% up from 49.1% quarter-over-quarter, but off 11 points year-over-year - although its ASPs were higher than they have been and it shipped record numbers of servers and mobile chips and Flash memory despite some nasty competition from AMD and a softening in MPU demand (the Americas were the only place showing growth, Intel said). Chipsets were flat and motherboards were down.

By comparison, AMD, which reports on Tuesday, pre-announced late last Thursday, expecting its revenues would only be up 3% and confessing that its ASPs and gross margin had been "significantly impacted."

Intel, which said its desktop sales were flat, refused to speculate on any market share gains it may have made ahead of estimates by IDC and Gartner. It hinted, however, that AMD may have overshipped product to the channel.

Chip watcher Nathan Brookwood said the situation reflects Intel's effort to get rid of its inventory of last-generation NetBurst chips while it continues to produce them. He reckons Intel's inventory levels quarter-over-quarter changed little and that it still has a hundred or two hundred million parts lying around. Bryant said Intel will try to hold down inventory this quarter, confessing it was hard in a declining environment.

Intel CEO Paul Otellini, who suggested things were more complicated than a simple price war, muttered something about having reset the company's entire price list to make way for an across-the-board product refresh. It's clear Woodcrest's debut saved Intel's bacon in servers and its early shift to 65nm helped it lower prices.

AMD, which just started volume production of 65nm in Q4, may get more competitive when it fields Barcelona, its first quad this spring.

During Intel's conference call Tuesday Otellini and Bryant repeated any number of times that they anticipated a "continued competitive environment." They forecast Q1 revenues between $8.7 billion and $9.3 billion, with a gross margin around 49%. They figure they can clear a margin of 50% for the entire year, not much better than Q4 because of start-up costs related to the shift to 45nm - mostly in the first half.

Overall chip demand in '06 was peaked, reportedly off 6.6%. Vista's release at the end of the month could help consumer sales of PCs, Otellini said.